How to Excel in D.C.

Spread lots of money around. Microsoft is now the No. 3 corporate political donor.

Welcome to Microsoft version 2.0, the political operating system. Without fanfare or publicity, America's software giant and its employees have doled out more than $50 million in the past six years to grease elections and win hearts and minds in D.C., and, at the current pace, could add a boggling $18 million more this year. A Seattle Weekly accounting of the company's political contributions and lobbying expenses shows a tenfold increase since 1998, placing Microsoft among the nation's top four corporate political donors and lobbyists. Based on its current rate of political growth, Bill Gates' empire could, by 2006, become the No. 1 corporate donor to federal candidates. Historically, its ever-expanding political giving has favored Republicans—one of Microsoft's top lobbyists, John Kelly, is one of George W. Bush's top fund-raisers. But the company's political action committee (PAC) and individual employees have given most of their donations so far this year to Democrats, including John Kerry.

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Altogether, it's a dramatic slow-motion leap into smoke-filled rooms for a company that once boasted it was apolitical. The turnabout is easily measured from a day in 1998, when Gates and company were under fire for possible antitrust violations and were at war with industry detractors. A political tenderfoot then, Microsoft floundered against accusations that its Windows products were unfairly hogging the market. One top official fretted that opponents were even attacking with lobbyists! "While Microsoft continues to focus on our customers," complained Jack Krumholtz, then Microsoft's federal affairs director, "our competitors and their hired guns in Washington, D.C., are focused on their campaign to inject government regulation into a healthy competitive software industry." Government regulations, he said, should not determine the future of technology.

Today, Microsoft has joined the pack and believes its future will be paved at least in part by hired guns and government regulations—preferably ones that favor Microsoft products. "As Microsoft has grown and matured as a company," spokesperson Ginny Terzano says on the phone from D.C., "so has our approach to government relations. We've grown more active on public issues affecting our customers and employees." The learning curve turned sharply in 2000 when an aroused Microsoft lobbied Congress to cut the funding of the Justice Department in hopes of undercutting the government's antitrust eagerness. At the same time, Microsoft began pouring money into political campaigns and in 2000 became the country's fifth-largest corporate political donor by giving $4.7 million, mostly to Republicans. This presidential-election year, the company has moved up to third-largest, so far donating more than $2.1 million, according to Federal Election Commission reports and a watchdog group, the Center for Responsive Politics. Microsoft's PAC, employees, and family members had donated $1.3 million to Democratic candidates and $852,000 to Republicans. Presidentially, they had given $135,543 to John Kerry, ranking 10th on his donor list, and $184,740 to George Bush, rating 19th on his list.

Two top Microsoft officials, Chief Financial Officer John Connors and lobbyist and attorney Kelly, are among elite fund-raisers for Bush—the Rangers and Pioneers, who have pledged to drum up from $100,000 to $200,000 for the Bush-Cheney ticket. A year ago, Connors co-hosted, with U.S. Rep. Jennifer Dunn (R-Bellevue), a $2,000-a-plate Bush fund-raiser at the Hunts Point home of cellular billionaire Craig McCaw, raking in $1.7 million. At the recent GOP convention in New York, Connors and Microsoft hosted a retirement bash for Dunn, who is also one of Bush's biggest individual fund-raisers.

Conversely, Microsoft group manager Matt Loschen has donated $45,774 of his own money to national Democratic candidates so far in the 2003–04 election cycle, and several other managers have given tens of thousands. Bill Gates has given $22,000 to both parties, including $2,000 to Bush but none to Kerry. CEO Steve Ballmer's $25,000 in federal giving mirrors Gates', including $2,000 to Bush and none to Kerry. Among local congressional candidates this year, Microsoft—its PAC and individuals combined—is the No. 2 donor to Democratic Sen. Patty Murray ($59,000) and No. 2 on the list of her rival, Republican George Nethercutt ($31,000). Microsoft is the No. 1 donor to Democratic representatives Jay Inslee ($63,750), Adam Smith ($31,750), Rick Larsen ($31,700), and Brian Baird ($25,000), and Dem congressional candidate Alex Alben ($20,600), who was seeking to replace Dunn but was eliminated in the primary last week. Microsoft was Democratic Sen. Maria Cantwell's second-biggest donor in 2000 ($30,000).

Having donated a mere $251,474 during the 1996 election cycle, Microsoft and its employees quadrupled that amount in 1998 and have increased it ever since. From 1998 through last week, the company had donated more than $12.3 million to presidential and other federal candidates, according to public records. More indicative of its new political savvy, Microsoft's lobbying investment has risen from a negligible amount in the mid-1990s to a company record $8.7 million in spending last year alone, based on U.S. Senate filings.

Among its lobbying causes, Microsoft has campaigned for tougher laws to protect its intellectual property and sought a softening of immigration laws controlling the entry of high-skill foreign workers. It is aggressively lobbying for political support to overturn antitrust sanctions levied by the European Union, the last big hurdle in the seven-year battle to win as much freedom as it can to leverage Windows' domination of the marketplace. The company is also stroking various agencies for government contracts, including the billions of dollars available in homeland security work. Already, Microsoft has won a $90 million pact to supply software to the Department of Homeland Security.

The company's corporate lobbyists work out of a 19-person government affairs office on Eye Street Northwest in D.C., headed by Krumholtz, the official who criticized those "hired guns" back in 1998. "Jack expanded our effort because we realized Microsoft should have a role in shaping the issues," says spokesperson Terzano. Since that watershed year of 1998, Microsoft has spent $43 million on lobbying, hiring, and engaging dozens of influential outside lobbying firms in addition to its own staff, according to a Seattle Weekly accounting. The outsiders have included Barbour Griffith & Rogers, formerly headed by ex–Republican National Committee chair and now Mississippi Gov. Haley Barbour, and Covington & Burling, a well-connected law firm that already this year has earned $900,000 from Microsoft lobbying for such pet projects as stronger sanctions against counterfeiters and spammers. In a federal report posted last week, Microsoft revealed its corporate lobbying office has spent $5.34 million in the first six months. Combined with $1.56 million spent on outside lobbying firms and the $2.16 million in campaign donations, the company's federal political spending reached $9 million for the first half of the year and at that rate could hit $18 million for 2004.

Kent Cooper, of the online tracking site PoliticalMoneyLine.com, says the top corporate lobbying group in the U.S. last year was conglomerate General Electric, which expended a massive $17.2 million to further its causes. Microsoft's $8.7 million earned it the honor of fourth-ranked lobbying corporation. Why spend the big money? "Microsoft believes it has a responsibility as an industry leader to work with lawmakers to create public policy," says spokesperson Terzano. She cites Microsoft's role in leading the fight to pass the anti-spam bill in Congress that, once its effectiveness grows, will benefit all. More narrowly focused is Microsoft's lobbying blitz to prevent distribution of open-source software, calling it a rip-off of Microsoft's intellectual property. Microsoft also teamed with Boeing and other corporations last year to seek billions in excise tax relief, and it has lobbied for a variety of proprietary measures to fend off Windows competitors, including its operating system rival, open-source Linux. Nonetheless, "Microsoft really tries to advance the ball on issues that are important to the company, the industry, and ultimately the consumer," Terzano maintains. "That's our goal."